AMD's $1.9B Pensando Buy Confirms Hot DPU Market

Chipmaker Advanced Micro Devices Inc. (Nasdaq: AMD) is acquiring private, venture-backed Pensando Systems Inc. for $1.9 billion to add more sophisticated edge network and compute processing via Pensando’s data processing unit (DPU) technology.

DPUs add more sophisticated packet processing to network interface cards (NICs), enabling some of the processing power from server central processing units (CPUs) in datacenters to be offloaded for functions such as encryption and networking. The idea is that over time, more network functionality can be embedded in the NIC, creating smarter, more secure networks that don’t overload the CPU. Pensando’s customers include Goldman Sachs, HPE, and Microsoft Azure.

DPUs Gather Momentum

The timing of the deal is certainly interesting. AMD’s archrival, NVIDIA, recently talked up the potential for the DPU market at its GTC conference, while at the same time announcing a partnership with Pluribus Networks to combine software-defined networking (SDN) technology with DPUs. NVIDIA made its own DPU play when it bought public company Mellanox in 2019 for $6.9 billion. As I wrote recently on Forbes, NVIDIA appears to be going all-in on DPUs.

In addition, former Cisco CEO and chairman John Chambers, who is an investor in Pensando, last week made a surprise appearance at HPE subsidiary Aruba Networks’ Atmosphere conference, pumping up Pensando’s success with HPE and Goldman Sachs. HPE has been a primary sales channel for Pensando.

The DPU approach has been around for years with the concept of SmartNICs, which were once thought to be expensive, niche solutions. But with major cloud providers such as Amazon and Azure recently stepping up their use of DPUs, many cloud network architects see expanded benefits by reducing the need for additional servers and driving up the performance and security of networking. This has expanded the opportunity for DPUs.

It now appears that chip companies addressing the cloud computing market believe that DPU technology is a checklist item for the portfolio – to accompany CPUs as well as graphics processing units (GPUs).

Pensando’s Star Team

Pensando has been a high-profile startup in the Silicon Valley community, staffed with former Cisco engineers such as CEO and co-founder Prem Jain and co-founder and chief business officer Soni Jiandani. Both were longtime Cisco executives also involved in “spin-ins” Nuova Systems (CFO) and Insieme Networks (CEO), which were both acquired by Cisco. Its backers included Lightspeed Ventures, Hewlett-Packard Enterprise, Goldman Sachs, and Chambers. Pensando has raised at least $300 million in the venture market, according to published releases. The most recent raise was August of 2021 when it added $35 million to a $145 million round in 2019.

Pensando created its own customizable chip, based on the P4 programming language. The vendor advertises the chip, called Capri, as delivering better latency and processing for edge networking applications. Pensando has partnership with HPE as well as other technology providers such as NetApp to package its technology with servers and networking appliances.

Exit Timing Makes Sense

Given Pensando’s high-profile team and the expensive cost of developing custom chips, the deal represents a decent-sized win but nothing extraordinary, especially given the valuations of startups in today’s environment. Networking pundit Greg Ferro pointed this out on Twitter this morning:

Considering that Pensando was operating for >5 years, developed a custom ASIC (which they claim is ground up), did sales/marketing/support for 3 years, then $1.9B is a modest exit.

— Greg Ferro - A Simplicitarian (@etherealmind) April 4, 2022

Pensando probably had no choice but to look for a deep-pocketed partner, and AMD makes a lot of sense. With costs potentially mounting and competition heating up, timing of the deal looks perfect for Pensando, given NVIDIA’s big push into DPUs and edge networking. With the DPU market growing, competitors moving, and AMD ready to buy, Pensando has found the right place at a good price. Investors were likely ready to cash in before the real DPU war heats up.